IMF Completes Estonia Review

The Executive Board of the International Monetary Fund (IMF) today completed the first review under the stand-by credit for Estonia. Estonia will treat the credit as precautionary and does not intend to draw the SDR 4.2 million (about US$ 5.6 million) that is available as a result of today's decision.

"The Estonian authorities have implemented sound policies that have allowed an economic recovery to gather steam, the current account deficit to decline sharply from the level reached in 1997, and the inflation rate to fall to near the EU level. These policies have contributed importantly to the maintenance of confidence in the currency board, which the authorities intend to keep in place in the lead-up to EU membership. Owing to these policy efforts and an improved external environment, the outlook for higher growth in 2000 and beyond is favorable.

"Despite the recent progress and encouraging prospects, continued implementation of sound policies is necessary to achieve the near-term objectives of sustained high growth in the framework of price stability and the maintenance of international competitiveness. To that end, firm budgetary discipline will be essential to adhere to the 2000 fiscal target and to aim for overall balance in 2001. In attaining these objectives, careful control over public expenditures will need to be exercised, while it will also be important to implement fully recent revenue measures. Financial sector vulnerabilities have been considerably reduced, but further improvements are needed, notably in nonbank financial supervision and to further enhance compliance with Basel Core Principles.

"Substantial progress has been made in the implementation of structural reforms in the context of Estonia's effort to boost the economy's performance and to meet all EU accession requirements by 2003. In the period ahead, the authorities should push ahead with the privatization of the few remaining major state assets, including in the energy sector. The authorities are evaluating options relating to the reform of the pension system, including the introduction of a fully-funded second pillar. Care will need to be taken so that the pension reform does not create any fiscal burdens that cannot be readily financed by the budget over the medium-term," Mr. Sugisaki said.